Finance minister Ralph Goodale and his Group of Seven counterparts have warned that hurricanes Rita and Katrina have left behind a dangerous legacy for the global economy: supercharged energy prices and a swelling US budget deficit. The storms, which have hobbled US oil production and refining capacity, have also thrown an unexpected curve at what had been a generally improving outlook for the world economy, Goodale said yesterday at the end of three days of meetings in Washington. The cost of cleaning up from Katrina alone could top US$200-billion, jeopardizing the Bush administration's pledge to halve its annual budget shortfall by 2009. The White House has projected a $333B deficit in fiscal 2005 and lower still in 2006, but most economists now say those targets won't be met. Goodale's comments come amid reports that US Federal Reserve Board chairman Alan Greenspan has acknowledged the US has “lost control” of its budget deficit. French finance minister Thierry Breton said Greenspan made the ominous comment during a private meeting Saturday. Breton added that both he and Greenspan expressed disappointment that reining in the deficit doesn't seem to be a political priority in Washington. Greenspan did not speak to reporters after the meeting, but he has often expressed concern about the economic fallout from the lack of US spending restraint, including an upward pressure on interest rates. Nonetheless, US Treasury secretary John Snow vowed that the Bush administration would “not stray” from its deficit reduction goals, despite the extra costs created by the recent hurricanes. “The relief and reconstruction will be costly, but the Bush administration . . . will not stray from our course of federal deficit reduction. With continued economic strength . . . we'll be able to help our neighbours and continue to reduce our deficit,” Snow said in speech yesterday to the World Bank's development committee.
(Globe and Mail 050926)